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2021 (2) TMI 386 - HC - GSTGrant of Bail - wrongful availment of input tax credit - specific contention raised on behalf of the petitioner is that in the present case, this Court needs to exercise its extraordinary writ jurisdiction under Article 226 of the Constitution of India since the right of the petitioner under Article 21 of the Constitution of India has been allegedly violated - HELD THAT - Section 132 (1) (i) of the CGST Act specifies that in cases where the input tax credit wrongly availed exceeds ₹ 5 crores, such an offence would be punishable with imprisonment which may extend to five years and with fine, the offence being cognizable and non-bailable. Thus, the central requirement for application of the said provision is that the input tax credit wrongly availed must exceed ₹ 5 crores. The whole endeavour of the petitioner in the present petition is to demonstrate that the figure of ₹ 5 crores is not exceeded, even if the facts as claimed to have been discovered by respondent No.2 during investigation are to be accepted. It is for this reason that much emphasis has been placed on the definition of person under Section 2 (84) of the CGST Act and it is emphasized that since each of the said firms or business establishments has a different registration number, the alleged wrongdoing of these four firms cannot be clubbed together to exceed the figure of ₹ 5 crores. The material available on record, including the figures stated in the affidavit filed on behalf of respondent No.2, would show that the figure of ₹ 5 crores stands exceeded, if the amount of input tax credit allegedly wrongly availed by at least two or more of the aforesaid firms, is put together. A perusal of the material on record shows that according to the facts that have emerged at this stage on the basis of investigation carried out by respondent No. 2, it is only the petitioner, who is effectively running and controlling all the four aforesaid firms or business establishments. Although the petitioner has retracted his statement given under section 70 of the CGST Act, the other statements on record show that the aforesaid four firms and their activities are carried out and controlled by the petitioner himself. In fact, even as per the statements made in the writ petition itself, the petitioner is sole proprietor of the entity M/s Shree Ganesh Textiles and he is the Karta of the Hindu Undivided Family that does business in the name of M/s Yash Fabrics . Section 137 (3) of the CGST Act, quoted above, clearly states that where an offence under the said Act is committed by a Hindu Undivided Family, the Karta shall be deemed to be guilty of that offence and he shall be liable to be proceeded against and punished. Whether in the peculiar facts of the present case it could be said that under Section 69 of the CGST Act, the Commissioner had reasons to believe that a person had committed the offences specified in section 132 thereof, thereby justifying authorization of an officer to arrest such a person? - HELD THAT - The material presently available on record prima facie indicates that not only was the petitioner alone responsible for the activities of the aforesaid four firms and that the entire KYC details and other information for registration of the said four firms pertained only to the petitioner, but the petitioner had indulged in prima facie fake claims regarding addresses of the said four firms. This is evident from the fact that respondent No. 2 has affidavits in its possession during the course of investigation from landlords and owners of premises from where the said four firms were purportedly conducting business, stating that no lease deeds were ever signed by such landlords and owners, thereby indicating that such wrongful and illegal activities of claiming input tax credit were undertaken by creating fake entities stated to be carrying out business activities from fake addresses. At the present moment, the material on record prima facie indicates that the petitioner alone indulged in all such activities. In tax frauds the modus operandi of creating fictitious entities to get around the rigours of law is not unknown. When the material available on record is viewed from this angle it becomes clear that the contention raised on behalf of the petitioner regarding non-availability of provision in the CGST Act for clubbing the wrongful activities of distinct legal persons, by relying upon certain provisions of the Income Tax Act and other legislations, cannot hold water and it cannot be said that respondent No. 2 wrongly exercised the power to arrest under Section 69 of the CGST Act, in the face of the material available on record at this stage with the said respondent. It cannot be said that the petitioner has been able to make out such a strong prima facie case that his arrest under the provisions of the CGST Act can be said to be in violation of procedure established by law, thereby violating his right under Article 21 of the Constitution of India - the petitioner has not been able to make out a case for exercising jurisdiction of this court under Article 226 of the Constitution of India. Therefore, the prayers made in the present writ petition cannot be granted. Petition dismissed.
Issues Involved:
1. Legality of the petitioner’s arrest under the Central Goods and Services Tax Act, 2017 (CGST Act). 2. Whether the alleged input tax credit wrongly availed exceeded ?5 crores. 3. Whether the offences committed were cognizable and non-bailable. 4. Whether the petitioner’s rights under Article 21 of the Constitution of India were violated. 5. Applicability of clubbing the tax violations of distinct legal entities under the CGST Act. Detailed Analysis: 1. Legality of the petitioner’s arrest under the CGST Act: The petitioner argued that his arrest was illegal as he was kept in custody for a bailable offence. He contended that the arrest and subsequent remand to judicial custody were improper because the alleged input tax credit wrongly availed did not exceed ?5 crores when considering each legal entity separately. The petitioner claimed that the four business establishments involved were distinct legal entities and should not have been treated as one. 2. Whether the alleged input tax credit wrongly availed exceeded ?5 crores: The petitioner contended that the input tax credit wrongly availed by each of the four entities did not exceed ?5 crores individually. Therefore, even if offences under Section 132 of the CGST Act were committed, they were non-cognizable and bailable. Respondent No. 2 argued that all four firms were effectively controlled by the petitioner and that the total input tax credit wrongly availed exceeded ?5 crores when combined. 3. Whether the offences committed were cognizable and non-bailable: The court examined Section 132 (1) (i) of the CGST Act, which specifies that offences involving input tax credit wrongly availed exceeding ?5 crores are cognizable and non-bailable. It was noted that the material on record indicated that the petitioner controlled all four firms, and the combined input tax credit wrongly availed exceeded ?5 crores. Therefore, the petitioner’s offences were cognizable and non-bailable under Section 132 (5) of the CGST Act. 4. Whether the petitioner’s rights under Article 21 of the Constitution of India were violated: The petitioner claimed that his arrest and continued custody violated his rights under Article 21 of the Constitution, as they were not in accordance with the procedure established by law. The court found that the Commissioner had sufficient reasons to believe that the petitioner committed the offences, justifying the arrest under Section 69 of the CGST Act. Therefore, the petitioner’s rights under Article 21 were not violated. 5. Applicability of clubbing the tax violations of distinct legal entities under the CGST Act: The petitioner argued that there was no provision under the CGST Act for clubbing the tax violations of distinct legal entities. The court noted that the petitioner effectively controlled all four firms, and the input tax credit wrongly availed by these firms could be combined to exceed ?5 crores. The court rejected the petitioner’s contention, stating that the material on record justified the Commissioner’s decision to arrest the petitioner. Conclusion: The court dismissed the writ petition, concluding that the petitioner’s arrest was justified under the CGST Act. The petitioner’s contention that the input tax credit wrongly availed did not exceed ?5 crores was rejected, as the material on record indicated that the petitioner controlled all four firms and the combined amount exceeded ?5 crores. The court found no violation of the petitioner’s rights under Article 21 and upheld the Commissioner’s decision to arrest the petitioner. The dismissal of the writ petition does not preclude the petitioner from applying for bail before the competent court.
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